Jumbo Loans | Direct Your Own Loan

Jumbo Loans Are Driving Credit Availability

Million dollar home loans are being handed out in record numbers even as many first time buyers are still finding it hard to get a loan.

Erin Gorman, managing director at Bank of New York Mellon Corp, said that she has seen more borrowers looking to take out $2 million dollars loans than at any time in the past. Some of the borrowers are even taking out loans to purchase second properties.

“These high-net-worth borrowers do act differently than first-time buyers, who borrow because they have to,” said Gorman, who serves as the national mortgage sales director. “High-net-worth borrowers don’t have to borrow. They choose to, so they’re very strategic about what, why, and when they borrow.”

Jumbo Loans on the Rise

The number of Americans who took out a home loan from $1 to $10 million in the most densely populated cities of America stood at more than 15,000 in the second quarter of 2014. That is the highest number ever recorded according to property data firm Corelogic.

There are a number of potential reasons why there is a sharp increase in high volume loans. Many wealthy buyers are looking to capitalize on their investments as the stock market rises and home prices surge upwards. The goal in many instances is to sell these homes for more than their purchasing price and thus turn a profit.

Many of these high end borrowers don’t even necessarily have to borrow in order to come up with the money they need. They do so strategically. At the same time, first time buyers are finding it hard to enter into the market. These buyers simply don’t have the credit scores that many lenders are looking for.

Right before the collapse of the housing market back in 2008, first time buyers made up about 35% of all borrowers. In June of this year, they only made up about 28% of existing home sales. Though many of the new first time buyers entering the market may not qualify for conventional loans, they may qualify for FHA loans. These have lower credit requirements than most loans which makes them especially attractive to first time buyers.

Credit Availability Increases with New Jumbo Loans

Mortgage credit availability has been increasing slightly ever month and that has continued from June to July, according to a report from the Mortgage Bankers Association. The increase was primarily due to a rise in the number of adjustable rate jumbo loans. Jumbo loans are simply loans that are above conforming loan limits. This limit may be higher or lower depending on where one lives.

Whenever credit availability decreases that means that lending standards are tightening. Whenever credit availability increases, that means lending standards are loosening. So, if you were not able to get a loan several months ago, this means that your chances of getting a loan now have improved slightly. Lending standards still aren’t as loose as they were back in 2008 before sub-prime mortgage crisis. But there is still an upward trajectory meaning more and more people will eventually be able to qualify for a loan as time goes by.

Homes with a High Value Require a Jumbo Home Loan

With home values rising a jumbo home loan may be exactly what you need to purchase a new home. In areas with high property values, such as many parts of California, the conforming loan limit of $417,000 is simply not enough to be a decent sized home. A jumbo home loan is any amount over the conforming loan limit. According to Zillow the average home price in San Francisco is $909,300 and in Santa Barbara it is $928,000. These are only two examples of areas where a jumbo mortgage is absolutely necessary for buying a home.

How to Qualify for a Jumbo Home Loan

Obtaining a jumbo mortgage will prevent you from needing to pay the difference between $417,000 and the purchase price in cash. You will still need to have a down payment, but significantly less than if you were to obtain a traditional mortgage loan. The standard down payment requirement for a jumbo loan is 30 percent. Some mortgage lenders may offer programs with only 20 percent down, but this is rare and typically based on an overall banking or investment relationship. If you are selling your current home, use the proceeds from the sale to increase your down payment if you want to receive an additional rate discount.

Most mortgage lenders that offer jumbo home loans don’t sell the loan after it closes. Instead, they keep it on the books or “portfolio” the loan. When this happens the banks maintains all of the risk and isn’t able to lend that money to someone else until your loan balance is either paid down or paid off. Due to the increased risk, mortgage bankers are more particular about credit and income. They typically require a 720 or 740 minimum credit score and solid job history. You need to demonstrate stability and dependability through a clean credit report and employment that looks like it will continue with the same level, or higher, of income earned.

You also need to have reserves that can cover your mortgage payment for six months or more. This gives the mortgage lender assurances that if something were to happen to your employment status you would be able to continue making mortgage payments while looking for work.

Recent Graduates and Jumbo Mortgages

If you are a professional and recently graduated from college you may be able to obtain a jumbo home loan with limited job history. For example, a medical doctor, dentist, chiropractor, or lawyer may be able to obtain a jumbo loan with less than two years on the job due to the stability of the profession. This is on a case by case basis so contact your mortgage banker to discuss the details.

Types of Jumbo Home Loans

There are a variety of home loan options including adjustable rate mortgages and fixed rate mortgage. If you are trying to keep your payment low, you may want to opt for an adjustable (ARM) loan since they have a lower interest rate and therefore lower monthly mortgage payment.

To find out if you qualify for a jumbo mortgage call your mortgage lender today.

Jumbo Loans Are Currently Available

This January, the new Qualified Mortgage Rule, went into effect. This rule makes it more dangerous for mortgage lenders to issue loans that may appear to be riskier because they would be liable if one of the loans is defaulted upon. Jumbo loans typically do not meet the QM rule which caused many borrowers and mortgage bankers to fear that the loans would no longer be available to borrowers. Fortunately, mortgage lenders have decided continue issuing jumbo loans and keep the money flowing.

The Qualified Mortgage rule requires lenders to assert that the borrower has the ability to repay the loan and outside of the box loan programs like interest only loans and jumbo loans do not fit the guidelines. Still, mortgage lenders like Wells Fargo have not changed their product offerings.

If you own a home that is valued at over $417,000, or would like to buy one, you may find yourself in need of a jumbo loan. The only way to avoid this is to purchase a smaller home or come up with a large down payment. Fortunately, jumbo loans are available so that you have a lending solutions. Jumbo loans are any loan amount over $417,000 in most areas of the country. Super Jumbo loans can get into the eight figures.

Jumbo Loan Qualification Guidelines You Should Know

• Good Credit – Most mortgage lenders will define this as a 720 or higher FICO scorethough you may obtain a lower interest rate with a 740 or higher.

• Income History – The underwriter will evaluate your income history, how long you have been working somewhere, and the duration of you receiving your current salary. If you recently graduated from school, they will want to verify your schooling instead of job history.

• Down Payment – If you are purchasing a home using a jumbo loan you are likely to need a minimum of twenty percent down, while typically they charge 30 percent down.

• Cash Reserves – Your mortgage banker will verify your cash reserves. This is the money you have available to make the mortgage payment in the event that something happens with your job. It is an assurance to the mortgage lender in your financial security.

• Solid Appraisal – Lenders do not want to issue loans on the most expensive house in the neighborhood. If it is slightly more money that is one thing, but if your home is in a rural area where all of the others cost $300,000 and yours cost $1.1 million, it will be very difficult to get a home loan. The bank needs to know that if you default on your mortgage, and they have to take it back, that the home will be able to be sold on the open market.

Now is an excellent time to purchase a jumbo home loan. To get started contact your local mortgage lender, learn about the process, and how to obtain the right loan for your dream home.

The 5 Most Expensive Cities to Own a Home

For those with millions to spend on a house, California might just be the perfect place to settle down.

In fact, five of the most expensive real estate markets in the country are all located in California. The high real estate prices have come in part from tech companies that have flocked to California in order to set up shop. To give some perspective, the average price for a home in the United States is roughly $200,000. The average listing price for the first city on this list comes in at a staggering $1,309,599.

5 Most Expensive Cities to Own a Home

5. San Francisco, California
The average listing price for a home in San Francisco is $ 1,309,599.

4. Los Gatos, California
The average listing price for a home in Los Gatos is $ 1,360,497.

3. Saratoga, California
The average listing price for a home in Saratoga is $1,684,261.

2. Newport Beach, California
The average listing price for a home in Newport Beach is $ 1,773,824.

1. Malibu, California
The average listing price for a home in Malibu is $ 2,155,900.

As an aside, it’s worth noting that all of these cities share one important thing in common. Between 78 and 83% of the home buying populace that lives in these cities have white collar jobs. Perhaps this should be taken as a life lesson. If one wants to own a million dollar home, then one might want to consider pursuing a white collar career.

If you’re interested in buying a home in any of these cities, then you’ll almost certainly need a jumbo loan. The conforming loan limit for cities like San Francisco is around $625,000. If you can find a home for less than this price, then a conventional loan will work just fine. But if the value of the house is above $635,000, then a jumbo loan will be required.

The good news is that jumbo loans have been easier to get as of late than they have been in years past. As home prices have stabilized somewhat over the past several months, these types of loans have become more accessible. But that doesn’t necessarily mean that getting one of these luxury homes is going to be easy even if you have a very lucrative career. Lenders typically want the home buyer to put down 20% of the value of the cost of the loan.

Wells Fargo and Bank of America have lowered that threshold somewhat and are accepting jumbo loans with only 15% down. However, 15% down on a million dollar home is still a ton of money at $150,000. Of course, not everyone who buys a house in California is necessarily interested in living in it themselves. Owning property in one of these cities could be very profitable if home prices keep going up. The problem is that home prices are tied to many different variables which can often be very difficult to predict. It’s possible, though arguably not very plausible, that another housing bubble will pop and send prices south once more.

How Jumbo Loans Will Be Affected in 2014

New rules from the Consumer Financial Protection Bureau, which went into effect on Jan 10th, will alter the financial landscape for jumbo loans.

Wealthy home buyers will see their options limited when it comes time to take out a jumbo loan because of the new regulations. Moreover, other regulatory actions could potentially make access to credit more difficult for jumbo loans. However, despite these changes, there are still a number of positive developments that higher end borrowers should keep in mind as they’re shopping for a home. But let’s start by going over some basic facts about what constitutes a “jumbo loan.”

What Are Jumbo Loans?

Jumbo loans are like most other types of loans, but they share one unique quality that other loans don’t. By definition they are for amounts which exceed conforming loan limits. In most areas of the country loans are considered “conforming” if they are for amounts less than $417,000. However, in certain parts of the country where real estate is more expensive like in New York, the conforming loan limit is around $625,000.

Jumbo loans don’t typically perform well during economic downturns, but that changed last year as the housing market continued to recover. There was a resurgence of jumbo loans in 2013 as wealthy individuals took advantage of the historically low rates for home loans. In fact, it was even possible last year to get a jumbo loan with a lower interest rate than a 30-year fixed home loan.

What Changes Will Come This Year?

One of the major changes in place is the elimination of interest only loans. For these types of loans, the borrower only pays the interest of the loan for the first few years without making any payments towards the principal. This rule applies to all loan types, not just jumbo loans.

Home buyers looking to take out a jumbo loan can expect to find lower down payment requirements from last year. For example, in 2013 Wells Fargo required borrowers to put down 20% of the value for a jumbo loan. But then they began accepting down payments for just 15% of the total value of the loan. Bank of America went ahead and made the same change. Some analysts have predicted that certain banks may even start accepting 10% down payments.

For those who have millions to invest it may actually make sense to make a low down payment on a home loan, even if they have assets to make a larger down payment. The money that can be used for the down payment could be invested and yield a considerable return. This is opposed to pouring the money into the house in which case the lender would make money off of it.

Lastly, interest rates on jumbo loans are expected to remain low this year in comparison to conforming loans. Moreover, the pace at which rates increase for jumbo loans is also expected to be slower than other types of loans. As in times past, adjustable rate mortgages on jumbo loans will continue to be cheaper than fixed rate mortgages for jumbo loans. But borrowers should keep in mind that adjustable rate mortgages may be cheap at first, but that variable interest rate could well go up as the market fluctuates.

Jumbo Home Loans are Available in 2014

The housing market saw gains last year that gave homeowners throughout the country equity in their homes for the first time since the housing bubble burst. This is fantastic news for homeowners that want to sell their home but can put additional strain on buyers. As home values rise above $417,000, buyers can no longer use a conventional home loan for the purchase unless they make a sizable down payment. Fortunately there are jumbo home loans available.

What is a Jumbo Loan?

Jumbo mortgage loans are for amounts over $417,000. There are jumbo loans that go past $10 million. These are the ideal solution for people that live in high cost areas, like California. They enable people to purchase an expensive home, while keeping more of their money in the bank.

Most jumbo loans are held by the mortgage lender (bank) rather than sold on the secondary market. This allows for greater flexibility and relationship style lending. Since the bank holds the loan in house, they cannot turn around and re-lend that money to someone else. This makes the underwriting requirements stricter than if you applied for a conventional home loan.

Down Payment Requirements

Each mortgage lender has different down payment requirements that change based on your credit score and how much money you are trying to borrow. You can anticipate paying a minimum of 20% down, with the average being 30%.

Credit Requirements

In order to qualify for a jumbo home loan,you need to have a good credit score. The minimum is typically 720, while some mortgage bankers may go as low as 680. Since the lender is taking a greater risk,they are more cautious with whom they will lend the money to.

Cash Reserves

The mortgage banker will ask to see cash reserves in the amount of six months, or more, of your mortgage payment. For example if your monthly loan payment is $5,000 they may want to see $30,000 in cash reserves. The money is still yours,but it gives the lender reassurance that if something changes in your job situation you have a safety net you can use to make the mortgage payments.

Income History

You will need to prove your job and income history so prepare those documents prior to applying. This includes two recent pay stubs, two years W-2s, and two years tax returns. If you are self-employed, gather your business tax returns as well.

Appraisal

Your mortgage lender will order an appraisal prior to approving your loan application. The appraisal is important for two reasons. The lender needs to know that the price you are paying is actually the market value and they will check to see if other homes in the area are selling for a similar amount. Lenders avoid issuing jumbo mortgages in an areas where there are no other similar homes. For example if you want to purchase a $3 million home in a neighborhood where everything else is $400,000 that will raise a red flag. It suggests that the market in that area does not support high end homes and if they bank had to foreclose they would not be able to find another buyer. When shopping for your dream home, look for neighborhoods that support the quality of home you are looking at.

Interest rates are still low and now is a fantastic time to buy your dream home. Home prices typically rise in the spring, making winter a good time to negotiate on sales price. Contact your jumbo mortgage banker today to discuss jumbo home loans and find out how much you qualify for.

Buy Your Dream Home Today With a Jumbo Loan

Home values have risen over the past year creating an increase in the demand for jumbo home loans. A jumbo loan is anything over the conforming loan limit of $417,500. In California and other metropolitan areas, it is extremely easy to go above this dollar amount when purchasing even a middle class home. Homes that are considered luxurious or high end are in the millions even after the housing bubble burst. Homeowners with large families or high end taste may find themselves in a position where the only houses they want to buy are well over the conforming loan limit.

When you are purchasing a home that is over the conforming loan limit you won’t be able to get a traditional home loan unless you have a large down payment that takes you down to the loan limit. This has made it difficult for some people to qualify for the home they have always dreamed of. Mortgage lenders have come out with jumbo home loans to help people that are in this situation.

Jumbo home loans have different underwriting processes than a traditional loan because they are not backed by the FHA or VA,and they are not sold to Fannie Mae or Freddie Mac after they close. Jumbo loans are typically held by the mortgage lender that issues them. That means they keep the loan in their portfolio instead of selling it on the secondary market. Some companies will bundle jumbo loans to sell,but this is dependent on market demand. Since a mortgage lender will typically keep the loan in house,they are carrying all of the risk and carrying it on a large loan amount. This means that underwriting standards are tighter than a traditional conforming loan.

Typical Guidelines for Qualifying for a Jumbo Home Loan

• Good to Excellent Credit – They will review your credit history to see if you have had any late payments, collections, judgments, or foreclosures. Good credit is anything over 680 where excellent credit is above a 720 FICO score.

• Down Payment – You will need to make a down payment in order to qualify. The percentage of your down payment is largely determined by the homes purchase price. For example if you are buying a home for $1 million or less the down payment requirement is typically only 20%. If you are purchasing a home for over $5 million most lenders will require at least 30% down.

• Income History – You will need to demonstrate solid income history that demonstrates your ability to continue making the same amount of money you are today.

• Reserves – The mortgage lender will require reserves to cover your mortgage payment for a period of time. They generally just look at how much you have in savings or other cash assets. This is to make sure that if you could no longer work or your income level changed you would be able to make the mortgage payment while you recovered financially or sold the home.

Now is an excellent time to look for your dream home and secure a jumbo home loan. Home sales dip at the end of the year as people are focused on the holidays. This provides a better environment for buyers to negotiate. Before you start looking contact your mortgage banker to get pre-approved so you know exactly how much you can qualify for.

How to Qualify for a Jumbo Home Loan

Jumbo mortgage loans can help you to purchase your dream home or refinance if you owe more than $417,500 on your home mortgage. Home values are rising throughout the country and jumbo home loans will become more necessary for home buyers looking to purchase high end or luxury homes. In some parts of the country, like California, it is extremely difficult to find a home in the dream neighborhood for under the conforming loan limit. In order to buy a home for more than $417,500 a buyer needs to either pay a larger down payment or use a jumbo purchase loan.

The underwriting guidelines for jumbo loans are more stringent than a traditional mortgage simply because the bank is taking a larger risk by issuing more money. Additionally jumbo loans are typically held by the bank that issues them, rather than being sold on the secondary market. Since the bank keeps the loan on its books they want to be sure that the borrower is qualified and able to make the loan payments.

If you are considering purchasing a new home, or need to refinance your jumbo loan, it is best to speak with a mortgage banker that is experienced at this type of loans. By navigating underwriting requirements, they can help you to secure the loan you need at the best interest rate.

Qualifying for a Jumbo Loan

• Steady income history – The bank will want to see a history of steady employment and verifiable income. Prior to contacting your mortgage lender gather two months of recent pay stubs along with two years of tax returns. If you are using investment or rental income you will also need to provide supporting documentation.

• Good credit rating – Banks require a good credit rating as part of the approval process for a jumbo mortgage loan. This means a minimum of a 680 credit score with 720 being preferable.

• Down payment – Jumbo loans are typically for 80%, or less, of the total purchase price or home value. Many banks only want to finance 70% so be prepared to come up with 20% – 30% for a down payment.

• Owner Occupied – You need to live in the home as banks will typically not finance a rental property with a jumbo loan.

• Cash Reserves – The mortgage lender will want to see enough cash reserves to cover the payment for six to twelve months. This is an important step to protect them in the event that a borrower loses their job or experiences financial difficulty.

Jumbo loans come in 15, 30, and 40 year fixed terms as well as adjustable rate mortgages (ARM) loans. This will enable you to select the mortgage term that meets your payment needs and long term financial goals. Extending out the mortgage term will help to keep the loan payment affordable even though the loan amount is higher than normal. Using an ARM loan can also reduce the interest rate, which further reduces the mortgage payment. Contact an experienced jumbo mortgage banker today to learn how you can use a jumbo loan to purchase your dream home.